Earnings Call Transcript - LBTYA Q3 2024

Operator, Operator

Good morning, ladies and gentlemen and thank you for standing by. Welcome to Liberty Global's Third Quarter 2024 Investor Call. This call and the associated webcast are the property of Liberty Global and any redistribution, retransmission, or rebroadcast of this call or webcast in any form without the expressed written consent of Liberty Global is strictly prohibited. At this time, all participants are in listen-only mode. Today's formal presentation materials can be found under the Investor Relations' section of Liberty Global's website at libertyglobal.com. After today's formal presentation, instructions will be given for a question-and-answer session. Page 2 of the slides details the company's Safe Harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical facts. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed Forms 10-Q and 10-K as amended. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or any conditions on which any such statement is based. I would now like to turn the call over to Mr. Mike Fries.

Mike Fries, CEO

Hello everyone and thanks for joining us today. As usual, we've got a lot of ground to cover and some pretty positive developments in our strategic plans to discuss with you. I'm going to kick it off with a handful of slides and then turn it over to Charlie to review our financial results. Of course, after that, we'll get to your questions, and I've got the full management team online with me today who will chime in as needed. So, let me start on the first slide with some Q3 highlights. I think as you'll see, while we had a good operational quarter, this update here focuses entirely on our strategic plans since there's really nothing more important right now than the work we're doing to drive value recognition in our share price. I'm sure you'd all agree. In February, we announced a handful of initiatives to do just that, and we've made substantial progress on each of them. By far, the most impactful today is the pending spinoff of our Swiss subsidiary, Sunrise, which is now scheduled for November 12th after 99% approval of the transaction at our EGM last week. I'm sure you're all following this, but the average analyst today has an CHF8.2 billion enterprise value on Sunrise. After adjustments for reduced debt levels, that results in the CHF3.6 billion equity value, which is $4.2 billion or roughly $12 per Liberty share. That valuation is underpinned by several factors, not the least of which is the intention to pay a CHF240 million tax-advantaged dividend in mid-2025 and a progressive dividend policy thereafter. It's also important to point out that despite theoretically representing nearly 60% of our stock price today, according to analysts, Sunrise only represents 20% of our proportionate EBITDA and what we now call our Telecom Group, and that's before any value is attributed to our cash balance and our growth portfolio. And more on all of this in a moment. In the U.K., we continue to make progress on our plans to create and finance the U.K.'s second largest fixed network company, or NetCo, fueled by an existing footprint of 17.8 million 1-gig homes, 5.6 million of which are already full fiber. I think anyone following the U.K. market today would know that quarter by quarter, things are slowly rationalizing on both fixed and mobile networks. An increasing number of altnets are beginning to either consolidate, seek recapitalization or shut down. Importantly, in this context, Virgin Media O2 added broadband subs in the quarter and continues to grow ARPU on its fixed base. We also remain positive on the merger between Vodafone and Three in the U.K. market. We believe and have said publicly that the CMA should and will likely approve the deal, which will result in a more stable mobile market for everyone while yielding additional spectrum and mobile network benefits to Virgin Media O2. Now, there have been some key developments in the Benelux region. I'm very pleased to have Stephen van Rooyen, now at the helm in The Netherlands. He's already brought a sharpened consumer and product focus to the market with a strong determination you can tell to drive market share across B2C and B2B. He's on the call today and available for any questions you might have. Welcome, Stephen. Now, our arrangement is to cooperate with Proximus on the fiber rollout in Belgium are under review by the regulator there. As a reminder, if that deal is approved on terms acceptable to us, this would result in a large portion of our network having roughly 100% wholesale market share and the balance at 65%. That's really unprecedented. Even without the agreement, Wyre is a world-class infrastructure business with 65% wholesale market share across the footprint, which we believe is going to attract significant interest from PE and financing sources. And to be clear, we remain intrigued about the idea of putting these businesses together at some point, what we have dubbed Liberty Benelux, and we continue to see operational, financial, and tax synergies down the road if this were to happen. With respect to asset sales, we are optimizing our investment portfolio all the time as promised, exiting lower-growth businesses at substantial multiples of returns and putting that capital to work in both our telecom businesses like the debt pay down at Sunrise or into what we believe are more attractive long-term opportunities. In the last 12 months alone, we've realized $900 million in asset sales, towards the high end of our forecast, demonstrating our ability to both generate and capture value from these investments. I think a few examples here are appropriate and will help make the point. We're already aware of All3Media, which was sold for 12 times EBITDA, with proceeds used to pay down debt at Sunrise. We've now sold around 25% of VMO2's tower portfolio in two tranches for roughly 17 times to 18 times EBITDA, netting $350 million of proportionate value to Liberty Global. We recently sold a portion of our stake in EdgeConneX, a premier global data center business, which values our residual interest at $370 million and implies a 30% IRR on our total investment. And we just sold our interest in Pax8, a leading marketplace for procuring and managing cloud applications, realizing over $70 million on an investment of $20 million for a 36% IRR. So, clearly, when it comes to our growth portfolio, we continue to prove out our ability to invest in strategic adjacencies, but just as importantly, exit those positions in a timely and profitable manner. And then finally, we also committed in February to repurchase 10% of our shares this year, and we are on our way to achieving that goal, with 8% acquired year-to-date. And when you put it all together, this will end up being a record year for shareholder remuneration at Liberty Global. Our buyback will add up to around $700 million when it's complete. And with the Sunrise dividend at $4.2 billion, according to analysts, that totals nearly $5 billion of shareholder remuneration on a market cap of $7.6 billion. And as we'll cover today, we're not done. Now, we assume that most of you have followed closely our progress on the Sunrise spin over the last eight months. Nonetheless, we provide on the following slide an update on the transaction, including all the key dates and trading details. This is a significant moment for Liberty Global shareholders, to say the least. So we are ramping up communications starting today as we draw closer to that distribution date. At 10:30 this morning, Sunrise management will be hosting their own Q3 results call, sort of a dry run, followed by another week-long investor road show. I can tell you, this management team is working very hard for you. And then on November 1st, this Friday, Liberty and Sunrise will be hosting our second investor Briefing Call to address any and all remaining questions on the transaction itself and trading mechanics. In particular, between the record date of November 4th and the distribution date of November 12th, we'll also cover key elements of the conversion from ADS to SIX shares. So, we encourage you or your proxy to attend this session, please. On the right side, we simply repeat the compelling investor messages that are resonating with shareholders and analysts thus far, in particular the fact that Sunrise is a scale-based challenger operating in Europe's most attractive telecom market with world-class brands, significant network optionality and a compelling free cash flow story. It's also worth pointing out that we expect Sunrise A shares to be included on the Swiss performance index five trading days following the listing on SIX, that's an important moment. Understandably, there's been quite a bit of focus on what's next and what happens now to Liberty Global after the Sunrise spinoff. And the following slide outlines this next phase of value creation. One of the big strategic pivots announced in February was a renewed focus on distributing assets to unlock value for shareholders when the time is right. Given Sunrise CapEx profile and free cash flow generation, it was the obvious first candidate. Moving forward, we remain squarely focused on managing our remaining telecom assets, what we now call Liberty Telecom, for the benefit of shareholders in that manner. We'll also continue to rotate capital out of other positions into strategic telecom transactions when that makes sense. Now, why is this exciting from our perspective? First of all, as I've already mentioned, despite representing 60% of our market cap according to analysts, Sunrise is a small piece of Liberty Telecom today, representing around 10% of RGUs, revenue and EBITDA on an aggregate basis. And as I said, closer to 20% of revenue and EBITDA on a proportionate basis. So, post the Sunrise spin, Liberty Telecom still represents, on an aggregate basis, over 80 million mobile and broadband connections, $22 billion of revenue and $8 billion of adjusted EBITDA. As with Sunrise, prior to our intention to spin, we believe we are getting very little, if any, value in our stock today for our interest in these assets. As a result, we are pursuing a value creation strategy for each Liberty Telecom business that's intended to drive commercial momentum, monetize infrastructure where possible and deleverage into strategic transactions like the Sunrise Spin or other types of crystallization opportunities. All four markets, Holland and Belgium, the U.K. and Ireland, are in that pipeline. I'm not going to address today each of these development opportunities in any detail, but we're going to keep you updated as the structure, shape and timing becomes clear. One thing we know for sure, though, is that the European telecom sector is moving towards what I would describe as more rational behavior among competitors, with a clearer picture of network and technology choices and an increasing regulatory support for investment. All of which means that Liberty Telecom, with marquee assets, premium brands and meaningful cash flow, should become even more valuable over time. And you'll notice here that we've rebranded what we previously described as Ventures to Liberty Growth. Why did we do that? For starters, this more accurately reflects both the assets in the portfolio today as well as our goal of investing into more scale-based businesses in tech, media, sports, and digital infrastructure that have tailwinds or represent unique market opportunities to create value. Great examples of this include Formula E, which we believe is poised for growth as the only global championship focused on sustainable racing. AtlasEdge is another great example, a massive data center play in Europe owned together with one of the most successful investors in the infrastructure business. Liberty Growth, as you know, is a $3 billion portfolio today, and with our track record and focus on disciplined and strategic opportunities, we think it's going to add significant value to our story over time. Finally, you also see on this slide, what we call Liberty Services. We've talked in the past of our central technology platform, which provides $400 million of technology services and IP to each of our Liberty Telecom businesses today, pursuant to long-term contracts. Similarly, Charlie's organization has separate units which provide over $100 million of financial services to these and other businesses within the family. We believe there's an excellent opportunity to build on these internal businesses by partnering with other professional service firms, growing in-house and third-party revenue and ultimately monetizing these contracts, IP and talent over time. This is yet another underappreciated source of value creation and capital formation within the Liberty Global story. Now, where will Liberty Global trade after the Sunrise spinoff? Well, that math is for you to do. In our opinion, you can make an argument, if you trade right where it is today, the $15 of cash and Liberty growth assets, you don't need to assign ROIC valuations to Liberty Telecom post Sunrise to get there, especially as we reduce complexity, create valuation transparency and continue demonstrating our ability to generate significant returns with our capital. Before handing it over to Charlie, I'm going to walk through our operating results quickly on the next slide. I think the first point to make here is that taken together, all of our operations achieved sequential improvement in broadband and postpaid mobile adds in the third quarter, including a return to positive broadband adds in the U.K. and a particularly strong postpaid mobile quarter in Switzerland. Starting with Sunrise at the top left, we see continued commercial improvement over the last four quarters, including another positive quarter of broadband net adds, supported by management's churn initiatives with the main brand and that includes more premium positioning, loyalty programs and cross-selling into FMC. Meanwhile, the slowdown in fixed ARPU was impacted by the lapping of last year's price rise. As the team indicated at the Capital Markets Day, we've substantially completed the migration of UPC customers at Sunrise, with remaining migrations expected to be value neutral. In Mobile, our dual brand strategy continues to drive growth, with 43,000 postpaid net adds and while the negative result in mobile ARPU reflects lower-priced flanker brand growth and lower out-of-bundle usage, we still feel very positive about that business. Now, the business also continues to benefit from a handful of innovations, including a new customer service AI tool, which supports five languages and allows customers to access help more seamlessly. Sunrise's Device-as-a-Service product, strong partnerships with hero brands like Swiss Key and Sunrise Moments loyalty program. So, a lot of positive things happening at Sunrise, and you'll learn more about that on their call today and their roadshow to follow. And moving to Telenet on the top right, you'll see continued small improvements in commercial results over the last three quarters, including an improvement in net broadband losses despite a very competitive market. And this was supported in part by the launch of BASE in the South this past summer. BASE fixed customers already stand at over 10,000, and we expect this to reach over 25,000 by the end of the year. That's well above our forecast. It's also worth pointing out, there has been another quarter of fixed ARPU growth supported by the June 2024 price rise of 3.5%. In mobile, postpaid net adds of 1,000 reflect a return to modest growth in an increasingly promotional market where everyone is anticipating DIGI's launch, including us. And while we're seeing higher value packages at a lower price, our BASE brand is well positioned in that context. And despite price discounting, we're able to keep postpaid ARPU stable year-over-year. And moving clockwise on VodafoneZiggo at the bottom right, you'll see modest sequential improvement in both broadband and mobile losses in the quarter. The broadband market remains very competitive with price-led promotions. While we continue to focus on our value over volume strategy, that's resulted in consistent fixed ARPU growth in four of the last five quarters. We did see higher fixed sales activity on the back of our UEFA football rights, which we believe provides an important differentiator in this marketplace and also a sales engine given our distribution through the Ziggo GO App. Mobile postpaid performance improved sequentially, but was still impacted by some B2B port outs related to local government contracts. And mobile postpaid ARPU growth was strong. That's despite a 10% price rise a year ago. And then finally, Virgin Media O2 at the bottom left had a much better quarter sequentially. Growth in broadband base was 16,000. That was supported by nexfibre sales as we continue to ramp up marketing on the new build footprint. Gross additions on the nexfibre footprint were over 40% higher than in the second quarter. We continue to see heavy discounting in the market as altnets seek to build penetration, which has put some pressure on the BAU footprint, which we expected. Despite the competitive environment, we continue to deliver on our value over volume strategy here as well, with fixed ARPU growth of 2.2% in the quarter. This was supported by the price rise of 8.8% in April, but more importantly, our ability to better retain these price rises today through our investments in the customer experience as well as digital initiatives that allow us to have a much more personalized pricing capabilities. In mobile, postpaid net losses of negative $15,000 was an 85% improvement over the second quarter, and that's due to reduced churn primarily at O2. We continue to see less activity at the premium end of the market, but we're well positioned to deliver across the whole market, with our giffgaff and Tesco Mobile brands at the lower end. By the way, our VOLT, FMC product has been very successful, continues to be very successful. In that customer cohort, we see higher ARPU, higher NPS and lower churn. Postpaid ARPU in the quarter was broadly stable given the inflation-linked price rise from Q2, offset by continued impact of our customer mix. And as with all our businesses, Q4 will be a key trading period for VMO2 with major handset launches, Black Friday, and Christmas trading. The team has a number of initiatives in place to improve O2 performance in particular, including O2 switch up, loyalty and building some same digital capabilities as in fixed. Fortunately, Lutz is back in the office after a short health-related matter, and I'm thrilled he's on the call here today to take your questions as needed. So, now over to you, Charlie.

Charlie Bracken, CFO

Thanks Mike. The next slide sets out a summary of the quarterly revenue and EBITDA performance in our four key markets. We saw broadly stable revenue and EBITDA across all the OpCos, with the exception of Virgin Media O2, which experienced a decline in both revenue and EBITDA. Sunrise reported a revenue decline of 1.3%, driven largely by the annualization of last year's July price rise and partially offset by continued momentum in mobile subscriptions and B2B revenue. Telenet delivered stable revenue in Q3, driven by the one-off impact and the recognition of previously deferred revenues that's around $18 million. And this was partially offset by a decrease in mobile revenue due to soft handset sales and a decrease in B2B wholesale revenues related to the loss of the VOO MVNO contract. Virgin Media O2 reported a revenue decline of 4.5%, excluding the impact of the nexfibre construction, and this was driven by continued headwinds in low-margin hardware and B2B fixed revenues. It was also impacted by the comparison with Q3 2023, when there was a one-off $48 million item. Despite these challenges, mobile service revenue and fixed service revenue remained stable again in Q3 and indeed year-to-date. And Virgin Media O2 maintained positive fixed revenue growth in Q3, supported by ARPU growth of 2.2% year-on-year. VodafoneZiggo delivered stable revenue driven by continued growth in mobile and B2B fixed revenues, and offset by a decline in the B2C fixed customer base and a step down from the larger fixed price rises from 2023. Moving on to our Q3 adjusted EBITDA performance. Sunrise reported stable adjusted EBITDA growth, driven by lower cost to capture and a decrease in labor costs, which offset the decrease in revenue. Telenet delivered adjusted EBITDA growth of 5.2% in Q3, and this was driven by continued cost control, but also the profit on the $80 million one-off revenue item. This was partially offset by higher labor costs and an increase in sales and marketing expenses, driven by the launch of the BASE brand in the south of the country. Virgin Media O2's adjusted EBITDA decreased 4.1%, excluding nexfibre construction. The profit on the one-off revenue item in Q3 2023 was a key reason for this decline. And finally, VodafoneZiggo reported stable adjusted EBITDA, driven by cost savings, particularly in customer service, IT and procurement, as well as business contracting services and lower energy costs. However, these savings were partially offset by higher programming costs due to the UEFA Champions League broadcast, as well as labor cost increases related to the collective bargaining agreement.

Mike Fries, CEO

Turning to the next slide, we give an update on the key metrics supporting our capital allocation model. At the end of Q3 2024, the free cash flow profile for each of our key operating companies remained on track to achieve our full year free cash flow guidance. We continue to hold a substantial cash balance of around $3.5 billion at the end of Q3 2024. Cash inflow related to operations in Q3 was $112 million, and with the dividends from our JV is expected to be paid in Q4. We continued investing modestly in our growth assets and executed share buybacks of approximately $165 million in Q3, in line with our 2024 guidance to buy back up to 10% of our outstanding stock. In our growth portfolio, we closed the quarter with a fair market value of $3 billion, making investments of around $73 million, largely in AtlasEdge and nexfibre, whilst executing disposals of part of our stakes in ITV and Laceworks. We did take a write-down on Televisa Univision of around $72 million based on operating performance. And finally, turning to our sum of the parts, we wanted to highlight the key drivers of our stock on a per share basis. We continue to believe the share price of $20 to $21 per share still doesn't fully value the inherent value of the business. We believe the Sunrise spin is the first step towards closing this valuation gap and have been encouraged by the average analyst valuation for Sunrise of CHF8.2 billion, which implies a $12 per share contribution to the current Liberty Global share price. Following the execution of the Sunrise spinoff, our aim is to unlock the remaining value sitting in cash, our growth portfolio and indeed, the other FMCs. The book value of cash after the Sunrise deleveraging listed stakes and unlisted assets in our growth portfolio equals $15 per share. And when combined with the $12 per share for Sunrise, the implied value for each Liberty Global share is $27 per share. Now, keep in mind, this doesn't attribute any value to the remaining FMC or indeed, services businesses that we retain. Turning to our debt position. We maintain a strong position, with the average life of our debt at nearly five years. We continue to have significant consolidated cash and liquidity, with siloed debt stacks at the FMC assets. Our debt silos do not face any material maturities until 2028, and we remain proactive in extending maturities of our debt, facilitated by our extensive swap portfolio, which is independent of the underlying bank debt, which allows us to term out bank debt and not lose the benefit of those attractive swaps. This strengthens our overall debt position and allows us to remain opportunistic and strategic in the market. Earlier this month, VodafoneZiggo successfully issued a green bond consisting of €575 million of senior notes due 2032. Now, we used the proceeds from this to refinance the existing senior notes, which were due in 2027. This transaction was net leverage neutral, but resulted in an increase in the average life of VodafoneZiggo's debt. At Sunrise, we are finalizing the paydown of the debt so that they are on track to meet their target net debt to adjusted EBITDA range of 3.5 times to 4.5 times. The $1.4 billion cash injection will be completed prior to the record date from Liberty Global's corporate cash balance, with the remainder coming from Sunrise free cash flow. And then lastly, as part of our 2024 guidance, I would like to remind you that we had refined Sunrise free cash flow guidance from CHF360 million to CHF400 million to CHF360 million to CHF370 million at the Capital Markets Day in September. I also wanted to reconfirm all our other remaining guidance metrics at Sunrise, Telenet, Virgin Media O2, and VodafoneZiggo.

Operator, Operator

That concludes our prepared remarks for Q2 and I'd like to hand over to the operator for Q&A. The question-and-answer session will be conducted electronically. Our first question comes from Robert Grindle with Deutsche Bank. Robert, your line is now open.

Robert Grindle, Analyst

Hi and thank you for taking us away from the U.K. budget. Look, I think there's a little bit of bad news for you on mix. But my question is on U.K. fiber, depending on how many Upp homes were incorporated. Organic build is perhaps closer to 200,000 homes in Q3 versus close to 300,000. Is this a change in momentum? Or just that it takes some effort to incorporate the Upp build? And at the same time, VMO2 fiber upgrade speed also seems to be modest versus your targets. Is there a tipping point on both builds, pending a U.K. NetCo wholesale deal? Or is it just the ebb and flow of the business? Thanks.

Mike Fries, CEO

Lutz, welcome back. You want to answer that.

Lutz Schüler, CEO of Virgin Media

Yes, sure. So, we have built close to 300,000 nexfibre premises in the last quarter, which is not really a slowdown, Robert. And I think on Fibre Upp, we have not disclosed the number. But overall, we are absolutely on plan to meet our internal budget. So, I think we haven't disclosed Fibre Upp numbers, but the overall Fibre Upp number is higher than last year. And we are on our way to implement that. So, there's no slowdown at all in any build. Neither on Fibre Upp, nor or nexfibre. And yes, it seems that NI will hit a bit our P&L, but let's see.

Mike Fries, CEO

Yes. One addition there, Rob, I don't believe there are any Upp customers if you're referring to the acquisition of the altnet in the year-to-date figures. That's more of a Q4 and onwards. So I don't believe they've been impacted at all by the integration of Upp. That was your question.

Robert Grindle, Analyst

Okay, many thanks. Welcome back, Lutz.

Operator, Operator

Our next question comes from the line of Maurice Patrick with Barclays. Maurice, your line is now open.

Maurice Patrick, Analyst

Yes, good morning guys. Also, great, Lutz, to have you back. A couple for me, the quite dull modeling questions. But the first one is just to understand where 2024 central cash ends up. So, if you start with your sort of $3.5 billion number that you gave for 3Q 2024. Just the moving parts. I think you have things like, for example, $120 million of Venture sales, you've got $220 million cash out performance for Formula E, presuming that's a Sunrise, $1.4 billion, so more buybacks. So, just the moving parts to help us work out where you'll end up around Q4 will be helpful. And the second question, just on the Sunrise EV. It's obviously a very topical time with the spend that you're doing. I mean, you cite the number of CHF8.2 billion being a consensus of analysts. But I'm just curious to understand that the CHF8.2 billion makes adjustments for things like, for example, the $30 million TSA that I think Sunrise will pay Liberty post the spin. If you adjust for things like LTIPs, I think Sunrise will pay $25 million, $30 million a year, LTIP, for example. Just help us understand what's in the CHF8.2 billion? Thank you.

Mike Fries, CEO

I think for the CHF8.2 billion, you should consult the analysts directly, as we are not calculating that number ourselves. We are only referencing the actual figures they have provided. The $30 million figure is clear and has always been included. I am unsure how they are accounting for LTIPs. Michael, if you have some general comments on this question, feel free to address it briefly.

Unidentified Company Representative, Company Representative

Yes. Thanks Mike. I think you summed it up. It's just a general average of where we can see Sunrise valuations in the analysts' sum of the parts growth into the CMD and then for a number of analysts who published standalone reports after the CMD. And as you say, Maurice, I think most of those points were brought out of the CMD and largely factored in. I think also to be fair, it's underpinned by this essentially tax-efficient dividend yield, which is well cut, to be fair, on a free cash flow of CHF360 million to CHF370 million, this is a CHF240 million commitment next year. That's a pretty good coverage ratio. So, I think that's the key anchor for the valuation.

Mike Fries, CEO

Do you want to address cash question?

Unidentified Company Representative, Company Representative

Yes. So, I think, look, our cash liquidity will be in excess of $2 billion, probably a little bit higher, actually. But that probably doesn't include the liquid stakes where we have very liquid securities, ITV, Vodafone, Lionsgate. So, you can make a case that our cash liquidity is nearly $2.5 billion. And one could argue that on a proforma market cap of $3 billion, that again highlights Mike's point about there's a lot of value to unlock here.

Maurice Patrick, Analyst

Thank you.

Operator, Operator

Our next question comes from the line of Joshua Mills with BNP Paribas. Joshua your line is now open.

Joshua Mills, Analyst

Hi there. thanks for taking the questions. I'd like to ask Stephen actually a couple of things on VODZiggo having recently joined the business. I was interested going through the first comments you've made in your press release related to that business. And in that, you talked about your confidence in restoring the best network experience at VodafoneZiggo. I think it's obvious, from the comments and also the results, that you've been losing share and cutting price over the past few years with KPN and the altnets have ramped up their fiber builds. So, my question is, what do you think you need to do with this business in order to stabilize, if not grow the subscriber base going forward? Is it a case of upgrading DOCSIS 4.0? Do you need to invest in more fiber? And how do you get back to growth? And perhaps if I could just take a second kind of part to that question. You talked on the call about value over volume in the Dutch market. But that value may become harder to come by as the back book price increases are now coming in lower than previous years. So, any comments you could give on how you plan to upsell customers? Perhaps any commentary on front book pricing trends as well would be welcomed. Thanks very much.

Stephen van Rooyen, CEO of VodafoneZiggo

Thanks for the question. Can you hear me?

Mike Fries, CEO

Yes, we can hear you.

Stephen van Rooyen, CEO of VodafoneZiggo

Thank you for the question. I appreciate it. This is a significant topic, and I want to remind you that I have been in this role for just a couple of months. Nevertheless, I will share my initial thoughts on our focus moving forward. Firstly, those familiar with the market will realize that it is currently very promotion-driven, especially since the fiber rollout began. Given the competitive pricing and promotions we've observed, I believe we have managed reasonably well. My short-term focus will be on reducing churn. We have an excellent offering to attract our customers. Beyond the speed we currently provide, we are confident in both our existing network and our future plans with DOCSIS to enhance speeds for our customers. Additionally, our portfolio has expanded with the inclusion of UEFA, which we believe sets us apart in the market. We also have a superb TV platform that is becoming increasingly popular with customers due to the Mini box, offering a fantastic user experience. Furthermore, we still have opportunities with FMC and a strong business in Vodafone, providing appealing packages. Combined, these factors create a valuable service for our VodafoneZiggo customers. We also have Holland Vivo, a brand that allows us to more effectively compete with price leaders, and I believe we can enhance our efforts with that brand. Regarding pricing, I do not foresee any immediate changes. As fiber expands, we often experience a period of intense competition as providers look to fill in their networks. My main priority will be on managing churn by providing more value to our customers with our strong offerings, while also utilizing our flanker brands to increase volume where possible. You'll hear more about this in the upcoming quarters as our strategy for VodafoneZiggo progresses.

Joshua Mills, Analyst

Thanks Stephen. Good job.

Operator, Operator

Thank you. Our next question comes from the line of Steve Malcolm with Redburn. Steve, your line is now open.

Steve Malcolm, Analyst

Yes. Thanks for taking the questions. I'll go for 2 if I can. Just on sort of RemainCo shareholder distributions and thoughts on. Can you maybe just sort of give us an update on where your thinking is on that and when you might sort of come back to us and give us a clearer view on how you want to return upstream cash when the spin is done? And then on just coming back to the U.K., you mentioned the sort of the growing number of press stories or an augment distress and companies kind of almost giving up, got TalkTalk bonds trading in the kind of low 60s. Just maybe a sense from what and where we are on sort of market consolidation, whether you're seeing more companies knocking your door, whether we should expect 2025 to be a year of kind of fairly intense activity on that front? Because it feels like we're kind of waiting for the storm to hit, but it certainly hasn't quite happened yet, but that would be great? Thank you.

Mike Fries, CEO

Yes. Thanks Steve. Listen, on the first question, chuckle because I have told everybody they're not allowed to use the word RemainCo in our company because when you do the math, actually, RemainCo is 90% as big as the current Co. So when we talk about Liberty Global going forward, minus the Sunrise business, which is a fantastic business, but relatively small in the scheme of things. It's exactly as I indicated in my prepared remarks, which is that with respect to the telecom businesses in the value creation strategy is going to look a lot like the Sunrise strategy. What do I mean by that? Well, we're going to be, first and foremost, driving commercial momentum and getting the businesses to perform the way they need to perform around revenue, EBITDA and free cash flow ultimately. Secondly, as we're doing in the U.K. and in Belgium and even in Ireland, infrastructure matters, and how we go about building, partnering, financing networks is going to be, I think, a very positive thing for the operations, but also a positive thing for the story we're going to tell about these businesses and the end games when they arrive. And then lastly, I mentioned deleveraging into strategic transactions, whatever those might look like. I think in each case, we see opportunity to create, whether it's listed companies, spinoffs or other transactions where the unrecognized value today in our stock price would be clear as a bell, just as it has become with Sunrise. I could go back and describe every analyst report from three years ago. Nobody was putting $12 on Sunrise. So, I think we have to be patient, number one, because I don't want to get people too excited that something is going to be happening next week or next month or next quarter. But on the other hand, I can promise you that there is a sense of urgency and commitment on my part and on the part of management to continue to pursue these types of opportunities where we can create transparency around valuation and for the benefit of the stock price. Yes, go ahead.

Steve Malcolm, Analyst

Mike, can I just sort of clarify, I'm thinking more about the sort of pace of buybacks. Obviously, the Liberty Global post-Sunrise, excuse my description of RemainCo, it's going to be a smaller company. There's going to be a bit less liquidity out there. Should we still expect 100% of organic cash flow to be used to return to buy back shares? Just the thinking around that. Clearly, you've got a $1 million opportunity out there, but just buying back stock is going to be a little bit harder because liquidity is going to be lower. Just thoughts on that would be great.

Mike Fries, CEO

Sure. Well, buying stock might be a little harder because the market cap may be smaller though we hope it's not. On the other hand, if the market cap is smaller than we're putting less capital to work to achieve the same results. So I think the buyback for us remains an important piece of the equation. And we've historically been in that 10% range. Let's see what 2025 guidance present. But at the same time, as the company becomes smaller because we are dividending to shareholders real value, then obviously continuing to be a buyer of our stock becomes a less cash requirement, a smaller cash requirement to do that. So, I'm not going to be specific with you here about when and how and how much, except to say that I think I would argue the buyback perhaps becomes even easier when you think about cash allocation or capital allocation because the market cap could be smaller, should be smaller given the distributions that we intend to make. On the U.K., altnets, Lutz, do you want to jump in there? You heard my remarks on the call, but you can add to that anything you want.

Lutz Schüler, CEO of Virgin Media

Thank you. I see this situation as a game of musical chairs. The music is still playing, and many alternative networks are running around the table. However, it's becoming increasingly evident that most of them lack a sustainable business model. Their building costs have been excessive, and their market penetration has not reached necessary levels. While some have found their niche, the majority have not. Many are able to secure additional funding or merge, which inflates their equity and allows them to continue hoping for success. A lot of them are reaching out to us for discussions, but the key issue is the valuation. It's challenging to predict how everything will unfold. What is clear is that it is not sustainable for alternative networks to continue in their current manner. Changes are inevitable, and we are ready to be involved in that process. Although we are somewhat affected by the aggressive promotions of these networks, our customer churn hasn’t skyrocketed. We only lost a few thousand more customers compared to last year, which isn't enough to sustain the alternative networks. I agree with Mike that the market will become more rational, but it's difficult to forecast how this will ultimately play out. We are prepared to engage in that shift.

Steve Malcolm, Analyst

Great. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Ulrich Rathe with Bernstein Societe Generale Group. Ulrich, your line is now open.

Ulrich Rathe, Analyst

Yes, thanks very much. I wanted to ask about broadband net adds in the quarter in Switzerland and The Netherlands. So first on Switzerland. In the release, you talked about reduced churn, but you qualified that by saying you have reduced churn in the main brand. Could you comment a little bit about the flanker brand is doing in broadband in Switzerland at the moment? And the second question is on The Netherlands. There has been a slight step back in the quarter. I think in the release, you're talking about a slower quarter. The question I really have is, why is UEFA really no benefit at this point? I mean, you have started marketing it, as I understand it. Why don't we see a bigger effect than the sort of slight improvement? I think it was like 2,000 quarter-on-quarter improvement on the losses in broadband. Could you comment a little bit about what you expect from this UEFA marketing? Thank you very much.

Mike Fries, CEO

André, you want to pick up the Swiss question first?

André Krause, CFO

Sure. Yes. So on the flanker brand, we have not seen any meaningful change quarter-on-quarter. But the reality is also that this is a quite young fixed customer base, in particular. And as such, we are seeing more customers running into the first time where they can actually churn off. Hence, we see some impact on that. But it's not a meaningful impact on the total number. So in total, really what drives the positive evolution is a good inflow and also in absolute terms, the overall churn reduction that we see across the brands.

Operator, Operator

Thank you. Our next question comes from the line of James Ratzer with New Street Research. James, your line is now open.

James Ratzer, Analyst

Yes. Thank you.

Mike Fries, CEO

Before we get to your question, a question on UEFA was asked. I want to be sure we get to that question. Stephen, do you want to address that? Sorry, the operator jumped in there. Go ahead, Stephen.

Stephen van Rooyen, CEO of VodafoneZiggo

Yes, Mike. No problem. I'll get that. So first and foremost, we're very pleased in the UEFA and the way it started for us. I think you got a question is a timing issue. The first games only started at the end of August. It covers only really less than a month of our performance on UEFA. It will take some time to build. We've signed up a number of customers who are not part of VodafoneZiggo through the Sky, the Ziggo GO app, free app, which gives us a fabulous place to market to our customers. And so we did see, as you rightly mentioned, we did see some pickup in the quarter, but we haven't really seen the full force of UEFA through our marketing or through our numbers just yet. You have to wait for that.

Mike Fries, CEO

Okay. Operator?

James Ratzer, Analyst

Yes. Thank you.

Mike Fries, CEO

Sure. Lutz, you can prepare to discuss the VMO2 number in detail. We provide this information every quarter for your review. Historically, it’s a useful way to analyze the business and understand the different components. Each market has its unique story. We are still in the early stages with VodafoneZiggo, as mentioned by Stephen, which is encouraging. This is a matter of value and volume for each market. The price increases this year are significantly lower than in previous years. Last year, specifically in Q2 and Q3, we implemented substantial price hikes. Generally speaking, smaller price increases are a factor, and in Switzerland, there are no price increases this year. This will affect year-over-year comparisons. Each market presents a slightly different narrative. For instance, we are starting to rebound in the U.K. in terms of high volumes. In some areas, we want to increase prices, particularly in mobile. However, in the fixed segment, we are seeing strong ARPU growth, as demonstrated in the slide I presented. This positive ARPU growth is occurring almost everywhere, and as we anticipate a volume increase in broadband, it will be beneficial in the long run. We are well positioned to pursue this as we head into 2025. Lutz, would you like to address VMO2 specifically?

Lutz Schüler, CEO of Virgin Media

Yes. To expand on that, regarding the consumer fixed segment, we implemented a price increase in the U.K. during the second quarter, which gave customers the opportunity to react and adjust in the third quarter. We are very proud of the 2.4% growth in this area, as we have successfully retained most of the price increase alongside customer growth. Looking back, this marks the first time in three years that we have seen such a trend shift in the U.K. fixed market. Additionally, 2021 is noteworthy as it is the first year since then that we are experiencing growth in fixed service revenue for the third quarter. On the mobile service revenue side, as Liberty Global indicated, there are handset insurance sales included in the figures. If you exclude that one-time adjustment, the mobile service revenue appears to be down around 1.1%, which is a decline from the second quarter. This decline is also a result of customer responses to the price increase, compounded by a challenging comparison to last year, which saw a 17% price rise. To improve mobile revenue to match the favorable trends we’re seeing in fixed, we are leveraging clear customer data for every user in our database, utilizing AI and personal pricing strategies. This system is helping us optimize retained revenue in fixed, and it's expected that a similar approach will be developed for mobile, facilitating our convergence efforts.

Mike Fries, CEO

Great. Operator, get to the next question, yes.

Operator, Operator

There are no questions registered at this time. That will conclude the question and answer session.

Mike Fries, CEO

Thanks everybody, for joining. And just a reminder, in 30 minutes, André and team will be back on with the Sunrise only earnings presentation. Hoping you could dial into that. And as a reminder, on November 1st, we'll have a briefing for anyone focused on the mechanics of the spin itself. And we appreciate you joining, and we'll speak to you soon. Take care.

Operator, Operator

Ladies and gentlemen, this concludes Liberty Global's third quarter 2024 investor call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website. There, you can also find a copy of today's presentation materials.